File image of Kevin Hassett. Take from the original by U.S. Embassy Berlin. Copyright: U.S. Government Work.
Dollar softening on rising bets for a December rate cut, and more next year.
Kevin Hassett, current Director of the National Economic Council of the United States, is extending his lead as the favourite to be the next Federal Reserve chair, and this is contributing to a softer dollar.
Polymarket assigns 34% odds that Hassett will succeed Jerome Powell as the Fed's next chairman, putting him well clear of Kevin Warsh and Chris Waller (both at 6%).
Just two days ago, Waller and Hasset were tied, but we now have the race moving in Hassett's favour, which has implications for the dollar.
"Kevin Hassett as the next potential Fed chair adds another layer of intrigue. His openly dovish stance - calling for cuts immediately and aligning with Trump’s bias for lower rates - reinforces market expectations of a more aggressive easing cycle. That prospect has already contributed to lower Treasury yields and a softer dollar," says George Vessey, Lead FX and Macro Strategist at Convera.
The Chair naturally holds significant influence over his fellow governors, and what Hassett says today will help guide market expectations for the future of monetary policy.
The shift up in odds favouring Hassett's appointment appears to be a Bloomberg piece that says Hassett has emerged as the front-runner to replace Powell.
He said last week that he would cut U.S. interest rates "right now" if he were in charge at the Fed.
Hassett aside, the odds of a December cut at the Fed have been steadily rising on account of recent economic data releases, and markets now assign a near-90% that the Fed delivers its next cut in December.
Odds were below 50% just a couple of weeks back.
"Signs of softness in the US economy are enough for officials to look past sticky inflation, with markets almost fully pricing a December rate cut and at least two more next year," says George Vessey, Lead FX and Macro Strategist at Convera.
The grind higher in the odds for a December cut arrested and then reversed the dollar's summer run higher.
With December effectively fully priced, the next legs of a dollar decline will rest with what happens in 2026.
Of course, data will play its part, but what's clear is that confidence in further cuts will rest heavily with the next Chair and his ability to swing votes in his favour.
A Fed that is almost likely to be more closely aligned with White House thinking raises concerns about monetary independence in the U.S., inviting a political risk premium to work into U.S. monetary assets.
This can weigh on the dollar during the coming months.